Task: Bonds payable:
On January 1, 2005, Solomon Sales Co. issued zero coupon bonds with a face value of $6 million for cash. The bonds mature in 10 years and were issued at a price of $3,050,100.
a. Required: What is the annual effective interest rate in the market when the bonds were issued?
b. Required: What amount of interest expense on these bonds would Solomon Sales Co. report in its 2006 income statement?
c. Required: How much interest will Solomon Sales Co. pay on these bonds in 2007?
d. Required: What will Solomon Sales Co. report as the total carrying value of these bonds in its December 31, 2008, balance sheet?
e. Required: What total interest expense will Solomon Sales Co. report over the 10-year life of these bonds?